Tasting Wine: The business of the wine business

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A few years ago, I had dinner in New York with one of my close friends from college who is now a corporate bankruptcy lawyer. He was an economics major and worked at the Federal ReserveBank during summers in college and after we graduated. I had just gotten back from a trip to Spain and was complaining about the exchange rate, which at the time was about 1.33. Unfazed, he told me that the dollar had been overvalued for a long time and that it would continue to lose ground against the euro.

One of the biggest worries among wine buyers such as me is that the plummeting dollar is going to affect the nature of the wine lists we can offer customers. There have been some big price increases in wines from Europe, and when we tack on the restaurant mark-up, it is exponentially even higher for the wine-drinking public.

Côtes du Rhônes, which used to cost me about $12 a bottle, now costs about $14. That's $2, or a nearly 17 percent increase. If I stick to a straight 2.5 mark-up, instead of that bottle costing $30 on my wine list, it is now going to cost $35, 20 percent more for my diners.

Let's go to Chianti Classico Riservas, which used to cost about $20 a bottle wholesale and is now about $23, meaning that instead of charging $50 a bottle on my wine list, it would go for around $59. That is not just $5 more (it’s almost $10) — even if it remains a 20 percent increase. Double this and you will pay $20 more than you were paying six months ago for the same wine.

As a result of these increases, I’ve been making more conscious value judgments. The same Côtes du Rhône might cost me $14 a bottle, but should I buy a Rhône-style blend of equivalent value from California if it costs less or the same?

Nine times out of 10 the answer, for me, is no.

How about if I decided to buy wines from Argentina or New Zealand, where the dollar has not been as badly affected or affected at all? Chances are I’m still going to prefer the Côtes du Rhône more — not any ordinary Côtes du Rhône but one that I had been already purchasing at a lower price.

How about Chianti Classico Riserva? Will it hold its value at a higher price? That is more challenging but against a California sangiovese at the same price, it will.

What if we put it against a California cabernet sauvignon of the same price? It’s an apples-and-oranges comparison, but from a complexity point of view, I’d still bet on the Chianti.

Imported wines go through several layers of pricing. When a winery sets a price to an importer, the importer then tacks on its shipping cost and other expenses plus mark-up. Sometimes the importer also acts as a distributor, but even when so, there is another added margin, so that by the time the wine gets to a restaurant or retailer, it has already been marked up several times. Many European producers have tried to be patient and fair, giving importers breaks when they could, but as the euro has continued to rise, there is only so much these folks can do.

I know this may sound a little complicated and you would rather have opened up the paper and found wine recommendations than a heavy dose of reality. I just thought it was time to give you all a little explanation about what you might have already noticed and will continue to see in terms of wine pricing.

That said, I think most buyers will stand by their buying decisions, whatever they may be, based on quality for the money. Enjoy your weekend, and I promise next week’s column will be more fun.